IMPACT OF MICROFINANCE ON POVERTY REDUCTION IN SOUTHERN PUNJAB PAKISTAN

Jilin Daxue Xuebao (Gongxueban)/Journal of Jilin University (Engineering and Technology Edition)
ISSN: 1671-5497
E-Publication: Online Open Access
Vol: 43 Issue: 01-2024
DOI: 10.5281/zenodo.10612414
Jan 2024 | 284
IMPACT OF MICROFINANCE ON POVERTY REDUCTION IN SOUTHERN
PUNJAB PAKISTAN
RAJAB HUSSAIN *
Ph.D. Scholar at Department of Economic, University of Karachi, Sindh, Pakistan. *Corresponding Author
Email: rajab.hussain1978@gmail.com
Dr. ROOHI AHMED
Professor, Department of Economics, University of Karachi, Sindh, Pakistan. Email: roohi@uok.edu.pk
Abstract
Microfinance has been adopted by several developing nations to raise their inhabitants' standards of living.
It also contributes to their improved economic growth. Pakistan is now implementing this idea and seeing
positive results from microfinance. In Pakistan, Khushhali Bank is a notable player in the microfinance
industry. The results of the sample data selection indicate that microfinance operations have an effect on
the standard of life of individuals residing in a particular region in Muzaffargarh. For this study, 100 clients
of Khushhali Bank have been chosen. The primary goal of the research is to determine how Khushhali
Bank's microfinance initiatives affect people's ability to live better lives. A Ex-post Facto research model
was used to the gathered data in order to determine the relationship between the microfinance loan and
living standard metrics. The analysis's conclusion indicates that microfinance operations have very little
influence on raising people's standards of living, meaning they don't play a significant part in raising living
standards. Apart from microfinance loans, there are additional variables that contribute to the improvement
of people's standard of life.
Keywords: Khushhali Bank, Microfinance, Rural Areas of Southern Punjab, Poverty Reduction, Logistic
Model.
INTRODUCTION
Microfinance is a method of financial enrichment that ensures that low-income clients
have access to financial services through their own network of institutions, even when
no other institution offers financial services Thai, (2019) [1]. Microfinance has proven to
have a positive impact on clients' lives. MFIs have increased their ability to earn more by
improving consumption levels and the health of their assets. Noor jehan, (2020) [2].
Currently, microfinance has become an important investment option in developing
countries. All major countries in the world, including Latin America and Africa, the
European Union, the United Nations, the World Bank and Asian banks fund micro-
research. Daud Rehman, (2021) [3]. Before operating microfinance institutions,
commercial banks had not attempted to address this problem of poverty. This goes
beyond the struggle with mainstream corporate banking and its continued fall short of its
targets. Commercial banks only reached 25% of the country's residents, and 75% were
closed and not included in the economic services of commercial banks. Later,
microfinance guidelines were introduced with the aim of transforming the lives of the poor
and targeting the majority of poverty. Therefore, the most effective desire to improve the
lives of many people has long been achieved through persistent strategies to improve
their lives.

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Although Khushhali's microfinance institutions are few and far between, microfinance
entrepreneurs continue to enjoy the innovative implementation of this negative impact.
Khushhali microfinance bank Pakistan’s first chartered microfinance institution, was
established in August 2000 from the financial support from Asian Development Bank and
paid in capital from 16 other commercial Banks. Based on outreach, Khushhali
Microfinance Bank Limited (KBL) is currently regarded as a major microfinance institution
in Pakistan. KBL is supported by well-made banking understanding with comprehensive
appreciation, by emerging socio-financial marketers, and pressed by way of a profound
& adopted knowledge of poverty aspect. Its operations and impacts span the majority of
Pakistan's regions, and Khushhali Microfinance Bank Limited, the pioneer of MFIs, is
associated with it. Restrained is ready to provide practical ideas for lowering and, ideally,
eliminating poverty right now.
Established in 2000, Khushhali Microfinance Financial Institution Limited is a financial
organization that functions as an institution of the management of the Microfinance Social
Advancement Program (MSDP) and the Poverty Elevation Fund of the Islamic Republic
of Pakistan (PPF). The MSDP has been advanced and funded by the Asian Development
Bank, which has its headquarters in Islamabad.
Under the 2000 legislation, Khushhali Microfinance Bank is completely supervised and
controlled by the State Bank of Pakistan. Additionally, it will undoubtedly establish
connections with other basic (business venture) banks that are also KBL investors. In
addition to working toward balancing out the country's recently formed micro-credit zone,
KBL must contribute to retail microfinance. As of December 31, 2023, there were 240
branches nationwide, 35 service centers, 8, 04,987 active borrowers, and a total of Rs.
17, 797,316,832 in cumulative disbursements. There have been 6, 27, 878 cumulative
loans serviced. (March 23, Khushhali Microfinance Bank Outreach).
Moodhi Raid (2023) [4] examined how microfinance affected living standards,
concentrating on the three main aspects of poverty: living standards, education, and
health. The findings indicate that funding from Microfinance Banks (MFB) significantly and
favorably raised the living conditions of the impoverished. They come to the conclusion
that microfinance may raise the living conditions of low-income consumers and enhance
healthcare and educational facilities. Policymakers should think about expanding
impoverished people's access to microfinance and credit in Pakistan's rural areas as a
means of reducing poverty. In general, the ability to access microfinance is essential for
maintaining a quality of living, especially for the most vulnerable members of society.
Raza (2022) [5] microfinance is an essential instrument for lowering Pakistan's poverty
rate. Better access to financing can lead to greater comprehensive financial services that
support inclusive growth and higher living standards. But it's crucial to take into account
how microfinance affects poverty at various levels, particularly in underprivileged areas.
Nadia Shabnam (2023) [6]. The study comes to the conclusion that microcredit can lessen
poverty if applied wisely. Based on their examination of household characteristics,
microcredit has a major effect on improving the standard of life for individuals at the local

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level. In general, the two studies emphasize the role that microfinance plays in attempts
to raise living standards in underdeveloped nations such as Pakistan.
Mohd Nor (2021) [7] examined the value of microfinance as a strategy for reducing
poverty. They point out that microfinance has been successful in raising the incomes and
quality of living of the impoverished. The study's findings indicate that respondents
thought microfinance was a good way to achieve prosperity. The poor's living conditions
improved and their income levels rose as a result of having access to credit facilities. The
research also discovered that loans had a big impact on the connection between poverty
and income, which helped small firms expand. These results imply that microfinance can
be a useful tactic for lowering poverty and fostering economic growth.
The organization that provides economic services to the underprivileged is known as
microfinance; these services include financial evaluation, exchanges, protection, and
investment funds. Microfinance stocks are made-to-order to the social and economic,
financial links, and goals of the specific type of establishment, such as commercial banks,
postal banks, microfinance institution banks, and NGOs.
According to Bauchet (2011) [8] microfinance is a means of creating economic systems
that benefit the underprivileged. There are several reasons why the study on how
microfinance affects living standards is important. First of all, poverty is a significant
worldwide problem that millions of people face, especially in emerging nations. Finding
practical solutions to lower poverty and enhance the lives of the impoverished is so
essential.
However, using a case study of Khushhali Bank in the Muzaffargarh area, this research
study aims to explore the influence of microfinance on living standards. The purpose of
the study is to determine how much the Khushhali Bank's microfinance services have
raised living conditions in the targeted area. The following research issues will be
specifically addressed by this study:
1) Which socioeconomic traits and business activities best describe the Khushhali
Bank's Muzaffargarh district clients?
2) What kinds of microfinance services does Khushhali Bank offer in the district of
Muzaffargarh, and how accessible are these services to the regions that are
chosen?
3) How much has Khushhali Bank's microfinance programme helped raise living
standards in the Muzaffargarh district in terms of clients' income levels, less
susceptibility to shocks, and improved general well-being?
4) What are the drawbacks and shortcomings of Khushhali Bank's micro lending
offerings in the Muzaffargarh district, and how may these be resolved to improve the
influence of micro lending on the quality of life?
By providing answers to these research questions, this study will provide light on the
effectiveness of microfinance as a strategy for living standards and point out areas where
microfinance services in the chosen region need to be improved.

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LITERATURE REVIEW
Muhammad Ali Nizami, (2023) [9] According to the study's conclusion, microbusinesses
are essential to the fight against poverty since they significantly raise living standards.
Additionally, microfinance considerably raises the level of living. Research indicates that
microfinance is significantly and favorably impacted by small companies. Research
shows that when small businesses work with state the positive impact on living of
standards is more pronounced. However, a negative and substantial influence was noted
when taking into account the moderating function of NGOs.
Additionally, the research emphasizes that there is a statistically significant correlation
between the growth of microbusinesses and the decline in rates of poverty. According to
Muhammad Ijaz Amjad's (2022) [10] research, there is a negative relationship between
market availability and poverty levels. Trading and services have the most effects on
lowering poverty out of all the industries. As a result, it is critical to boost the number of
women enrolled in credit programs, paying special attention to motivating them to utilize
their loans for the trading and service industries, which have the greatest potential to
alleviate poverty.
Al-Amin (2022) [11] the growth of microloans and poverty are closely related.
Furthermore, poverty, small and medium-sized businesses (SMEs), and agriculture have
a long-term impact on the expansion of microfinance loans. Regression analysis findings
from this study suggest that, in the near term, poverty may be reduced by the expansion
of SMEs and that, in turn, poverty may encourage the nation's micro lending sector. The
statistical insignificance of the other short-term factors was discovered, nevertheless.
Short-term development of microfinance institutions and SMEs are positively correlated,
according to the study.
This indicates that a rise in MFIs encourages the expansion of SMEs, and a rise in SMEs
results in a rise in lending to MFIs. In conclusion, our research shows that microfinance
is critical to reducing poverty and that, over time, poverty, SMEs, and agriculture all have
a substantial impact on the sector's growth. SMEs and the expansion of microfinance
institutions have a mutually beneficial connection in the short run. The results highlight
the vital role that the microfinance sector plays in ensuring a quality of living, especially
in areas with high rates of poverty and limited financial access for marginalized groups.
Rules, legal changes, and policies that enhance the business climate, guarantee the
sustainability of loan provision, and set suitable standards for beneficiary selection are
required in order to bolster the microfinance sector's position in the economy. To ensure
effective loan utilization and payback, ongoing supervision, training, capacity building,
and mentoring are also required. Overall, the research emphasizes the value of
microfinance organizations and urges coordinated efforts to increase their capacity to
support a quality of living (Nasharty, 2022) [12].
Kasali (2020) [13] explain the impact of microfinance on living of standard in case of
district Muzaffargarh. Their findings are based on primary data collected through stratified
sampling.

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The Propensity Score Matching (PSM) method is used for the findings and results of study
explains that microfinance contributes to reduce poverty. Study also explain living of
standard tools other than microfinance, for example Do et al. (2021) [14] explain that
foreign direct investment is a poverty eradication tool as it creates employment
opportunities for poor households and unskilled labour and ultimately reduces poverty.
Pham and Huynh (2020) [15] find that credit helps enterprises to purchase technologies
and to employ skilled labour. Enterprises can also use new production devices to expand
their business and profitability. Expansion in business also reduces poverty.
Chibuzo (2018) [16] Explore the effects of financial inclusion on living of standard, the
moderating effect of microfinance. Data were collected from 384 micro clients’
respondent’s banks obtain funds through auto-completed surveys. By demonstring
different PLS SEM methods studies have shown that a positive relationship between
financial inclusion and poverty reduction. Further state that microfinance positively
moderate the relationship among the variables of study
Rajper (2018) [17] concentrated on examining the effects on standard of life of microloans
given to Khushhali Bank Limited clients in the Muzaffargarh area of Dera Ghazi Khan,
Pakistan. With a sample size of 370 people, the study evaluated the impact of many
factors on poverty alleviation, including income, education, gender, age, residential
region, occupation, and the amount of microloans issued. Microfinance is a major
influence in reducing poverty among the recipients, according to the findings, which
indicate a substantial association among the various factors examined. Additionally, the
study indicates that microfinance institutions have the capacity to enhance their
performance and contribute significantly to bank customers' level of life in Muzaffargarh.
The study's overall findings underscore the significance of microfinance in enabling
people to live comfortably and the necessity for these institutions to keep growing in order
to serve more underprivileged populations.
Mahmood et al. (2016) [18] examine the role of microfinance to raise standards of living
and income generation activities in Pakistan. Their findings are based upon data collected
from district of Punjab, Pakistan namely Muzaffargarh. They explain that living of standard
is possible through the raise in per capita income and however, improvement in living
standards can meet through increase in expenditures of the households. Qamar et al.
(2015)[19] explain the relationship of loan facility to living of standard in Pakistan using
data from two microfinance institutions i. Khushhali bank and National Rural Support
Program (NRSP) with a sample of 396 borrowers. The results explain that microfinance
has positive and significant impact on household expenditures.
However, this impact is insignificant on household assets. Azam and Azid (2015) [20]
explore the role of microfinance in living of standard in Pakistan with data from Punjab
Rural Support Programme (PSRP), which is a microfinance institution. A sample of 476
clients is taken from selected 20 villages of 11 districts in province of Punjab. Results
indicate that targeted respondents are socially deprived and poor. The loan disbursement
has positive contribution towards poverty eradication. Further, Sani et al. (2017) [21]
explore the impact of microfinance institutions in living of standard in Pakistan.

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The data of 80 low income households is collected through questionnaire from clients of
First Micro Finance Bank, Finca Micro Finance Bank, Khushhali Bank, Kashaf Foundation
and Apna Micro Finance Bank in Muzaffargarh. The results show a significant impact of
microfinance on living of standard. Samer et al. (2015) [22] investigate the role of
microfinance and its impact on eradication of poverty in Muzaffargarh. Results explain
that microfinance significantly increases the household income of established or old
women borrowers than new clients in the study area. It also helps the women borrowers
to improve their socio economic condition.
Bismark et al. (2016) [23] investigate the role of institutions providing micro financing in
central Ghana for living of standard and conclude that microfinance has positive impact
on income, assets, savings and business development. Microfinance also contributes
significantly towards women empowerment and business capital. Recent literature
explains that microfinance is vital to reduce poverty in poor households.
Studying Microfinance and Livelihoods Using Empirical Data from Rural Pakistan, Asad
K. Ghalib, (2015) [24]. 1,132 homes, comprising both borrowers and non-borrowers, were
interviewed in order to gather primary data. The outcomes demonstrate that the
microcredit program significantly and favorably affects the participating households.
Standard impacts of life expectancy have been noted in a number of measures, including
household income and health care spending. According to Okubo and Makanga's (2014)
[25] study, microfinance is an effective strategy for assisting the impoverished in this
region (South Africa). Furthermore, the study indicates a lack of contentment with the
loan's modest size and calls for an increase in loan amount.
Regmi (2013) [26] presented a case study of the Manushi microfinance program in
Goldhunga VDC, Kathmandu and describes that both livelihood and livelihood activities
show marginal improvement, with significant per capita income for poor members and
non-member women. The review further mentioned that IMFs alone cannot meet the
needs of the poor, especially poor women, and solve many different problems. Not
enough regulations or policies might be in place to support the interaction of many of the
current rural organizations and services with mass groups and extension offerings in
order to carry out living standards programs.
RESEARCH METHODOLOGY
Primary data of rural microfinance clients of Khushhali Bank is collected from four
branches of Khushhali Bank located at tehsil level in Alipur, Jatoi, Kot Adu and
Muzaffargarh Pakistan through structured questionnaire. Five point Likert scale from
strongly disagree to strongly agree is used in the questionnaire.
The duration of field survey is from April to June 2022.The data collection method mostly
used in survey study is questionnaire Saunders et al.(2011) [27]. Since questionnaire
method is used in this study, therefore, the participants taking part in survey were
informed in written as well verbal that their information will kept secret and purpose is
research based.

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Questions about three core dimensions of poverty described by Pakistan’s multi-
dimensional poverty, which are health, education and living standards. Also income,
consumption expenditures and self-employment are included in the questionnaire.
Nine indicators of poverty are included in the study to explain the three dimensions of
poverty which are health, education and living standard with indicators like years of
schooling, access to health facilities, sanitation, water, walls, cooking fuel, electricity,
assets, land and livestock along with demographic variables like gender, age, family size,
marital status and residence status etc.
Monetary measure of poverty is also included in the study which is indicated by income
and consumption. A tool for living of standard, which is self-employment that generates
income through financial resources, provided by microfinance bank (MFB) is also
included in the model. Self-employment is indicated through investment in small business,
agriculture inputs and livestock. The brief explanation of variables is provided below.
Age of Borrowers
Age of borrowers among demographic factors is used in most of the empirical studies in
microfinance (Nouman et al. 2013) [28]. Moreover, Li et al. (2011) [29] explore a positive
but insignificant relationship between microcredit accessibility and age of borrowers in
China. While Tang et al. (2010) [30] analyze the effect of age and witness a significant
and positive result on rural credit markets in China.
Gender of Clients
The women clients of microfinance are more preferable borrowers than male borrowers
in some developing countries like Bangladesh (Pitt & Khandker, 1998) [31] and Indonesia
(Hawariyuni et al. 2014) [32].
The female borrowers have shown higher repayment rates than male which results in
preference of women while lending by MFIs. Pitt and Khandker (1998) found larger effects
of microfinance programs on the behavior of poor households when women were
borrowers in Bangladesh. Oktenand Osili (2004) [33] discovered that females are
preferred for grant of microcredit in Indonesia.
Education
Education is an essential ability that has the basic and influential importance for an
individual wellbeing. Universal primary education is the second goal of MDGs. So,
education has been included as an indicator for measurement of multidimensional
poverty.
Funds are utilized particularly for income generating activities and rarely for consumption
expenditure, children education and savings (Balkenhol, 2006) [34]. Improvement in
educational attainment directly reduces poverty and also improves income generating
methods, brings awareness to improve access to health facilities and reduction of family
size causing positive role in living of standard through education (Psacharopoulos &
Woodhall, 1985) [35].

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Health
Health is also an important determinant of the wellbeing of the people. Three goals of
MDGs are related to health. Several capabilities are mainly determined by the health
condition of individuals (Naveed & Islam, 2012).
Family/Household Size
Large family size is a credit constraint. The poor households in rural areas with larger
families have to make more struggles to meet their daily basic needs instead of paying
their regular loan repayments as they are advised by their microcredit providers (Okurut,
2006) [36]. Moreover, Okurut (2006) said that household size has positive and significant
influence to credit accessibility during two national assessment periods in South Africa.
Living Standards and Basic Needs
According to Glewwe and Gaag (1990) [37] a household is considered poor if he cannot
meet his educational, medical, food, clothing and other needs. The basic needs have
close relationship with income (Goldstein, 1985) [38]. An adequate income level through
provision of financial sources can help the poor to acquire all the basic human needs for
the welfare of their family and themselves.
Income of Rural Households
Li et al. (2011) in a study explore that household income affects the possibilities of
obtaining microcredit in the Province of Hubei in China. They found a positive and
significant connection among credit accessibility and income by rural households in
China. The study shows that the rate of acceptance of application for microcredit was
greater for higher income households.
Assets
Assets also influence the ability of access to microcredit. The borrowers with surplus
funds or having less budget restrictions are less interested to participate in microcredit
programme. Li et al. (2011) conclude that assets are negatively but significantly related
to the possibility of being a microfinance borrower in China.
Clean Drinking Water
Access to safe and clean drinking water is the basic component of wellbeing. The reason
for different diseases like Diarrhea is unsafe drinking water which causes deaths of
children in Pakistan. Unsafe drinking water is the basic cause of different infectious
diseases like Hepatitis in Pakistan. According to MDGs, clean drinking water is included
in goal 7 which is about environment sustainability.
Clean Water and Sanitation
Sanitation has an important role in housing, health and wellbeing of households.
Sanitation is closely related with several public health aspects. According to MDGs,
provision of better sanitation is included in goal 7 which ensures environment
sustainability.

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Household Income/Expenditures
Income and expenditure are two approaches which are commonly used. Level of income
and sources are used to measure income approach while household expenditures are
calculated in expenditure approach. Expenditure approach is more practical, accurate
and less time consuming (Meyer et al., 2000) [39].
According to Mahjabeen (2008) [40], MFIs played a positive role to increase income,
assets and consumption level to decrease income disparity and increase wellbeing. The
other variables Child attendance, Immunization, assisted delivery, overcrowding, assets,
electricity, cooking fuel, land and livestock walls and pet animals
Self- Employment and Entrepreneurship
Entrepreneurship is defined as to create new business or to update the present business
unit to have opportunities for new business taking risk. Creation or updation of small
business unit through small investments is termed as micro entrepreneurship.
Finance has the major role in economic development (Drioadisuryo& Cloud, 1999).
Without provision of financial capital, poor people cannot start and develop business,
increase their income and productivity of labour (Woller & Woodworth, 2001) [41].
Sample Size & Reliability Analysis
A sample size of 384 respondents is selected for analysis. Before collecting final data,
Cronbach’s alpha test is applied on 40 selected respondents as pilot study to examine
the reliability of questionnaire.
The benchmark value of the test is 0.70which show the reliability of questionnaire
(Cronbach & Warrington 1951) [42]. The value of Cronbach’s alpha which is greater than
0.70 is considered reliable in social sciences. Table 1 shows the rule of thumb for the
Cronbach’s alpha reliability test.
Table 1: Reliability Levels
Cronbach’s Alpha Internal Consistency
α>0.90 Excellent
0.90>α>0.80 Good
0.80>α>0.90 Acceptable
0.70>α>0.60 Questionable
0.60>α>0.50 Poor
α<0.50 Unacceptable
Source: (George, 2011)
The reliability of questionnaire and internal consistency of variables is checked using
Cronbach’s alpha test. The overall value of Cronbach’s alpha is 0.739, which indicates
the best internal consistency of the questionnaire. Reliability analysis of individual item is
presented in table 2

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Table 2: Reliability Analysis of Variables
Types of
Variables
Variable Name
Cronbach’s Alpha if item
Deleted
Independent
Variables
Monthly Income 0.73
Business Experience 0.76
Money Received from MFB 0.73
Loan Purpose 0.77
Electricity 0.74
Loan Duration 0.76
Customer Duration 0.74
Monthly Expenditures 0.73
School Going Children 0.75
Immunization 0.74
Ante-natal care 0.73
Coking fuel 0.74
Household Assets 0.77
Assisted delivery 0.74
Land and livestock 0.75
Clean water and sanitation 0.73
Livestock Possession 0.75
Home Appliances 0.74
Agri Machinery 0.74
Residence status 0.76
Dependent
Variable
Years of Schooling 0.73
Increase in Access to Health care/BHU 0.73
Improvement in Living Standards 0.73
Demographic
Variables
Age 0.76
Education Quality 0.73
Gender 0.75
Material Status 0.74
Occupational Status 0.76
Family Size 0.74
Source Author’s Own Calculation
Ex-post Facto research model
Micro credit aims to generate employment and income to the poor and living of standard
in the developing countries like Pakistan. This socioeconomic impact of the micro credit
may lead to increase in income and employment which will further lead to better access
to education, health care and other basic amenities of life.
The empowerment of women is another positive impact of micro finance programs that
leads to higher social status and economic independence of women. The above
hypothesis was analyzed at 5% level of significance.
The calculated chi-square values have been presented in the table, which is compared
with the tabulated chi-square value at 5 percent level of significance for 4 d f i.e. 10.781.
As can be seen from the above table, three of the twenty statements—an increase in
children enrolling in school, an increase in children participating in the family business,

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and a rise in essential consumption expenditures—have been determined to have minor
differences.
It demonstrates that the majority of respondents, regardless of their financial sources,
concur that using microcredit may result in more kids enrolling in school. On the negative
side, it may lead to involvement of children in the family business to augment the family
income. Also it may give rise to the unnecessary and unproductive expenditures in the
family budget.
However, the use of financial resources being in their own hands, they may use it
productively or may waste it for demonstrations. It has nothing to do with what type of
sources of finance they are using and that is why there was no significant difference in
their perception with respect to these three statements.
Similar finding was observed by Fenton et al. (2012) [43].For the remaining 15
statements, the respondents have been found to be significantly different depending upon
the sources of borrowings i.e. banks and the SHGs sources.
Highly significant difference was found to be in the respondents’ perception regarding
reduction in the use of SHGs sources of finance, if banks are providing micro financial
services at affordable terms.
The respondents' perceptions of the effects of microfinance services on the advancement
of women, the development of entrepreneurship skills, the improvement of market
knowledge, the dissemination of social awareness, the increase of income and
consumption, and other topics also showed a significant difference.
As a result, overall, the respondents who have used the SHGs network for financing have
a more positive perception of microfinance services and think that they are useful not only
for addressing their basic and small-scale financial needs but also for enhancing their
personality and business skills, which will enable them to escape poverty.
However, those who rely on unofficial sources of funding have an unfavorable opinion of
the banks' attempts at microfinance (2013, 2014). In the sense, they still prefer tapping
informal channels of finance and find difficulty in accessing the formal channels.
So, the foremost need of the hour is to encourage the use of banking services among the
rural poor to change their perception, positively, towards the microfinance services
provided by the formal sources of finance, specifically, the banks.
The bankers should organize awareness programs to let the poor people know what kind
of schemes are available to provide financial support to them and their benefits thereof
so that they feel motivated to utilize such services and enjoy their benefits. Similar finding
was observed by Chowdhury et al (2015) [44].

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Table 3: Showing associations between poverty and the micro finance of
respondents
Dimension Indicator of mutli dimension poverty
Chi- Square
Values
Results
Ho Accepted/
Rejected
Education
Years of schooling 16.609** Significant Rejected
Educational quality 22.067** Significant Rejected
Increase in children enrollment to
schools
6.944** Insignificant Accepted
Health
Access to Clinic/BHU 17.354** Significant Rejected
Immunization 12.622** Significant Rejected
Increases child labor in family business 7.635** Insignificant Accepted
Ante-natal care 11.446** Significant Rejected
Assisted to delivery 10.845** Significant Rejected
Standard
of living
Rise in unnecessary expenditures on
consumption
Clean water 27.511** Significant Rejected
Sanitation 13.550** Significant Rejected
Walls 12.979** Significant Rejected
Overcrowding 6.171** Insignificant Accepted
Land and livestock 30.928** Significant Rejected
Pet animals 9.990** Significant Rejected
Electricity 44.150** Significant Rejected
Developed entrepreneurship skills 31.723** Significant Rejected
Better women empowerment 34.456** Significant Rejected
Personal vehicle 4.770** Insignificant Accepted
Better utilization of already available
resources
**5% level of significance
In order to examine the relationship between the factors impacting the socioeconomic
status and the improvement in the overall socioeconomic status of microfinance service
recipients, further multiple regression analysis was performed.
When the five components were taken into account as independent variables, the total
socioeconomic level of the microfinance beneficiaries the dependent variable was shown
to be explained by the sum of their respective factor scores.
The development of entrepreneurship was the one of these five variables that was most
substantially and positively contributing to the respondents' socioeconomic position, while
the unwarranted increase in consumption was considerably negatively contributing to the
same. The results of Banerjee et al. (2016) [45] are consistent with this observation. That
indicated the need to encourage entrepreneurships among the rural poor and
discourages the use of finance for the unproductive and unnecessary expenditures.
The respondents were split into two groups, one consisting of those who received
microfinance from SHGs and the other of those who obtained finance from unofficial
sources, in order to investigate any disparities in perceptions regarding how microfinance
services affected their livelihood status.

ISSN: 1671-5497
Vol: 43 Issue: 01-2024
DOI: 10.5281/zenodo.10612414
Jan 2024 | 296
The chi-square test was used to assess the difference. Out of the twenty assertions, it
was discovered that the difference was substantial for fifteen of the claims and negligible
for the other five. It was discovered that SHG/bank clients had a higher favorable opinion
of microfinance services than did informal financing borrowers.
Thus, it is possible to draw the conclusion that, in order to effectively assist the rural poor
in utilizing the microfinance services offered by the banks, there is a great need to
increase their usage of banking services.
CONCLUSION
More than 66% of the rural population is served by microfinance institutions, giving them
a wider breadth or reach in terms of serving huge populations. Thus, it can be said that
microfinance has a larger distribution. When looking at the target demographic, it is clear
that microfinance is assisting more people who are living over the poverty line. A question
mark will be raised about the effectiveness and poverty reducing impacts of microfinance
in society if it is not providing services to the population below the poverty line. It was
determined that beneficiaries who received more than one loan from a microfinance
institution did not necessarily fall into the low-income category. Since institutions don't
reach the actual target population, the reach of microfinance is in question, and its
influence and commitments to eliminate poverty seem wage. Population levels above
poverty are not a reliable indicator of microfinance effectiveness and raise more concerns
about its beneficial effects.
RECOMMENDATIONS
Based on data that Khushhali Bank obtained from its clientele, the following suggestions
are made in an effort to enhance MFI operations.
1) It is recommended that the institution contemplate the potential of extending the
grace period and decreasing the frequency of payments in order to accommodate
consumers who take out long-term loans from businesses.
2) One major reason why MFIs are unable to function in rural regions is the poor
condition of the infrastructure, particularly the rural roads. To increase the market
penetration of MSEs, the government, in partnership with MFIs, should also work to
strengthen infrastructure by introducing trade shows to their micro and small
companies.
3) Educational institutions need to redesign their training content to improve the
business skills of clients. They must organize regular business training for their
clients and must provide this from a qualified training institute.
Conflict of interests
The writers affirm that their interests are not in conflict.
Funding
No particular funding was provided for this work.

ISSN: 1671-5497
Vol: 43 Issue: 01-2024
DOI: 10.5281/zenodo.10612414
Jan 2024 | 297
Acknowledgements
Not applicable
Author’s contributions
All writers worked together to complete this project. The completed work was read and approved by all
writers.
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